Budget 2020: NRIs to face more tax compliance issues

According to the proposal, income earned abroad will be exempt if any tax is paid in another country. The question that arises is what happens to Indian citizens who live in countries where there is no tax on individual incomes?

MUMBAI: With more and more Indians trying to hide their taxable income by stashing away their money abroad, the Finance Minister has taken several steps in this Budget to put an end to this mode of tax evasion. The measures are bound to impact NRIs negatively.

To begin with, the Finance Minister has reduced the number of days an NRI would have to be in the country in a financial year. “With the period of stay in India being reduced from 181 to 120 days, people have to spend more time abroad—more than 245 days compared to 183 days earlier, to get the NRI status,” said Suresh Surana, Founder, RSM India. Another and bigger move is aimed at people who dabble in ‘tax arbitrage’ by living in different countries without becoming residents of any. In effect, these Indian citizens do not pay tax in any country. Henceforth, they will be treated as Indian resident and all their income, including foreign income, will be taxed in India. Will it impact NRIs badly? “Genuine NRIs need not worry, because the aim of the legislature is to catch people who are evading the tax net,” said Asrujit Mandal, Partner, BDO India.

According to the proposal, income earned abroad will be exempt if any tax is paid in another country. “What matters is the tax incidence and not the tax rate in a foreign country,” said Uday Ved, CA and tax expert. So, one’s foreign income will remain tax-free in India even if it has been taxed at 1% in another country.

The question that arises is what happens to Indian citizens who live in countries where there is no tax on individual incomes? “Since the tax exemption on salary in say, UAE, is conferred by the law of that country, it will not be taxable in India,” said Mandal.

However, whether India has a tax treaty with that country or not will play a critical role here. “Income earned in countries like UAE, with which India has a tax treaty, will be exempt. However, income earned in other tax havens, which have no tax treaties with India, will be taxable in India,” said Ved.

As of now, taxation of resident Indian and NRIs goes something like this. If one’s status is ‘resident Indian,’ then one’s income earned abroad is taxable in India. However, one has to to pay tax only on one’s Indian income if one is an NRI. The Indian income can be salary received in India, payment for services provided in India, rent from a house property situated in India, capital gains on transfer of asset situated in India, interest earned from fixed deposits or savings bank account in India, etc.